Should I Consolidate My Debt?

I’m going to start with the punch line… don’t consolidate your debt!

Before I get into the reasons why this is a hugely bad idea, let’s get on the same page with what debt consolidation is. Debt consolidation is combining separate non-secured debt into one loan with one payment to one company. This often gets confused with debt settlement, which is working with your debtors to reduce the amount you owe and/or the interest rate.

Dave Ramsey has an excellent article titled “The Truth About Debt Consolidation” that has all the details, but I want to point out the two basic reasons why I am against it.

First, you don’t change your money habits. Most people that consolidate their debts end up right back in the same boat. If you are forced to get an extra job or sell some of your stuff to make payments, you figure out that you don’t want to do this again. Paying off debt is hard… there is not a magic pill.

Second, it will take longer to pay off the debt, and it will cost you more. Let’s face it, your monthly payments are a burden, and you may not even be able to make all of them each month, so a lower payment is attractive. The truth is you will be paying longer, which translates into paying more money (it could be several years and thousands of dollars more).

Keep control of when and how you are going to pay off your debt… don’t leave it up to someone else!